Investor BrainTheresa W. Carey's Investor Brain2014-03-24T21:19:23ZCopyright (c) 2014, twcareyExpressionEnginetag:investorbrain.com,2014:03:22The Best Online Brokers of 2014tag:investorbrain.com,2014:index.php/site/index/1.2972014-03-22T21:16:00Z2014-03-24T21:19:23Ztwcareytheresa@twcarey.com"It’s clear that the devices we use, and the ways that we use them, are fundamentally changing, and that provides investors with room for growth, limited only by the creativity of the tools we provide,” says Ram Subramaniam, president of Fidelity Investments’ retail brokerage business.

IN RESEARCHING Barron’s 19th annual ranking of the best online brokers it was clear to us that personalizing each client’s trading and investing experience, regardless of time or location, was becoming a reality. It’s more than just hardware. Our top brokers let you customize everything from your trade ticket to your portfolio analysis reports, speeding you through placing orders while helping you—understand your gains and losses.

]]>Fidelity Helps Traders Plan Exit Strategiestag:investorbrain.com,2014:index.php/site/index/1.2952014-03-08T20:01:00Z2014-03-10T20:35:34Ztwcareytheresa@twcarey.comAs a result, Fidelity has created Trade Armor, which has been integrated into Fidelity’s Active Trader Pro, a downloadable program for the firm’s most frequent buyers and sellers. It helps guide them through various exits by tapping into its graphical layouts and technical tools.

The Trade Armor graphs display price support and resistance levels for a stock, along with your entry price (if you already have a position). You are led through the process of setting up a closing order, including placing bracket orders, in which you create a profit target or stop-loss level at which you want to sell.

When entering a new position, you also can set up the exit order and have the target prices displayed on the graph with triangular flags. You can modify your exit order by dragging the flags up and down the price chart. Those exit orders aren’t sent to the market until the price hits the right marks and can be executed. Otherwise, your exit orders would be out there for much of the world to see.

TRADESTATION HAS MADE major changes to the way its customers can develop and share tools they’ve created.

The online broker’s newly launched TradingApp Store (tradingappstore.com) lists a variety of technical-analysis tools, order-placement utilities, pairs trading, and charting tools that can be downloaded and added to your TradeStation platform. The firm sponsors a TradingApp contest that lets other TradeStation customers rate the available apps. Some apps are free, such as Exhilaration ETF, a trading strategy that buys when an exchange-traded-fund price pulls back and then exits, hopefully with a profit, after a few days. Others carry a subscription (which mostly range from $20 to $100 a month), such as Solidus Time Sales Pro, which identifies large volume trades, useful for active futures, stocks, and ETFs. Usually $20 a month, this app carries an introductory monthly price of $5.

What I find interesting about the TradingApp Store is that those who are conversant in TradeStation’s programming suite EasyLanguage can generate a little extra income by sharing their tool with others. TradeStation has had ways for its developers to share the tools they’ve written, but the store makes it much easier to sort through them and find what you want. And other customers will pay for the app, which TradeStation then deposits into your account.

Investors with more than $100,000 in assets at the broker now get the $99.95 monthly platform fee waived. That makes it accessible to less frequent traders.

The new Strategy Builder generates a multi-leg option order as you click on prices displayed in an options chain. As you click on the contracts you want, the tool recognizes the strategy you’re creating. For instance, if you buy a March call on Microsoft (ticker: MSFT) and sell an April call, Strategy Builder will identify that as a calendar spread, and let you further analyze the potential profitability before actually making the trade. The firm has also added the ability to create a delta-neutral options strategy with one click of the Delta Hedge button. This will add an appropriate-size stock leg to the strategy to make it delta-neutral, which is intended to balance out the effects of price changes as markets move.

You can pore over options strategies in IB’s new Option Strategy Lab, which lets you look at potential profit and loss based on your forecast for a stock’s price or volatility. You can enter “ Tesla Motors’ (TSLA) stock price will increase 20% by March 14.” The Lab lists the possible strategies that could profit from your forecast. You can then weigh them before making the trade. You can take that forecast even further in the Probability Lab, which lets you pit your forecasts against market probabilities, and build potentially profitable spreads graphically. Not bad.

Published in Barron’s, March 3, 2014.

]]>Farewell to my Favorite Father-in-Lawtag:investorbrain.com,2014:index.php/site/index/1.2962014-03-01T20:36:01Z2014-03-12T21:02:50Ztwcareytheresa@twcarey.comRobert S. (Bob) Carey passed away in Portola Valley, peacefully at home after a short illness. Bob was a beloved husband of more than 66 years to his wife, Myrtle (Myrt) Ciprian Carey. He was a loving father and mentor to his five children (and their spouses), Robert (Vance) of Watsonville, Kent (Theresa) of Palo Alto, Dawn (Stephen Schaniel) of Los Gatos, Paul (Natasha) of Mountain View and Glen (Lynn) of Palo Alto.

Bob was born in Kansas City, Mo. and raised in Chicago, Ill., where he met Myrt in their early teens. Myrt and Bob married in November 1947 and moved to Ann Arbor, Mich., where in 1952, he received Bachelor of Science degrees in Metallurgical and Chemical Engineering from the University of Michigan. Bob moved from Michigan to California to work for Union Oil as a refinery corrosion engineer shortly after graduation. In 1958, he became involved in the aerospace industry at Aerojet, first in San Ramon and then in Southern California to participate in the Space Race. When Voyager didn’t see life on Mars, Bob turned his engineering talents to the medical research instruments industry, working at Beckman Instruments in Palo Alto as Chief Metallurgical Engineer and moving his family to Ladera in Portola Valley.

Bob had a passion for reading, playing racquetball and golf, traveling the world, watching Giants baseball and attending college football games. He also enjoyed attending his children and grandchildren’s many activities, including numerous sports, performances and plays. He was head umpire for Alpine Little League in the late 1960s. Bob was an Elk from 1976 through 2004. After retiring in 1991 from Beckman, he spent many pleasant Tuesdays as a golf marshall at the Stanford Golf Course until last year.

Foremost, Bob was a loving, lifelong companion to Myrt. His legacy is that of a mentor with a strong moral compass, who led by example with warmth and grace.

A celebration of Bob’s life will be held at 2PM on Saturday, March 15, at Ladera Community Church, 3300 Alpine Road, Portola Valley CA 94028. There will be a reception in Peabody Hall following the service.

Donations in Bob’s honor may be made to The Canary Foundation (http://www.canaryfoundation.org), or to the Ladera Community Church Endowment fund by check. The Endowment Fund makes sizable donations each year to local organizations fighting poverty.

]]>Where to Profit From Volatilitytag:investorbrain.com,2014:index.php/site/index/1.2942014-02-14T18:00:00Z2014-02-12T21:48:28Ztwcareytheresa@twcarey.com
Livevol has been around since 2009, with several available platforms. Livevol Core, for $79 a month, offers over 80 live market scans to help identify potential trades. You can modify the built-in scans, which identify volatility and technical events, to create your own personalized scanners, and flip through market sectors using a wide variety of volatility statistics. Livevol Pro, which includes advanced charting as well as tick-by-tick pricing updates, also lets you build skew charts displaying the volatility of each strike price by expiration date, that utilize two years of history. You can scan for covered calls, cash secured puts, iron condors, protective puts, and a variety of vertical spreads, as well. This platform is $300 per month.

Or you can sign up for a Livevol X account and get all of these tools for no additional charge beyond relatively low commissions. Utilizing proprietary technology, the Livevol platform efficiently handles enormous amounts of data. The options montage page displays live data as well as historical data; the platform is designed to optimize the flow of live information so that the historical displays don’t slow it down.

“As our name suggests,” says Catherine Clay, Livevol’s CEO and an alumna of options market maker Timber Hill, “volatility is something we spend a lot of time on.” Volatility tends to flatten during rising markets, but it displays spikes during market declines, even brief ones. Clay notes that the company’s proprietary technology powers a VIX-like calculation on every underlying stock that is optionable, looking at hypothetical 30-day, 60-day, and 90-day volatility. Historical volatility is also displayed for all optionable securities.

Livevol X is a platform that you download onto your computer. The layout is easily customized, and can be spread over four monitors. You can keep track of the time and sales of the options trades going through for the stocks on your watch lists, which gives an interesting picture of where traders believe the market is going.

The options montage, which Clay says is the focus for most of the firm’s customers, lets you play around with implied volatility so you can build your own model of an option’s price. “If you think you know where volatility is going, we can show you the theoretical price,” says Clay. You can create simulated positions in the montage and assess the risk as well as the trade’s impact on your portfolio’s profit and loss.

Livevol has skew charts built in, which usually look like a sideways smile--though some traders call it a smirk—as volatility is typically lower for the higher strike prices. But you can find skew charts that appear abnormal for a variety of reasons, such as a potential buyout or an upcoming earnings announcement. Abnormal skew can indicate a profitable trading opportunity, and Livevol lets you build a trade ticket directly from a skew chart.

Livevol’s trades are executed through Interactive Brokers, though you never see its interface. Portfolio-performance analysis can be monitored by underlying stock, expiration date, greek calculation, and a variety of other measures. If you have a lot of positions, you can organize them into folders and perform your analysis on a subset. You can also sort your portfolio by highest to lowest profit, or delta, or pretty much any other measure you can think of.

Commissions are on the low end of the market at $0.0065 per share for stocks (minimum charge of $1.50) and $0.65 per options contract (minimum of $1.50 per leg). Since Livevol clears through Interactive Brokers, they extend IB’s very low margin interest rates that currently range from 0.5% to 1.57%. You can get portfolio margining with an initial account funding of $125,000; to maintain it, you must maintain equity of at least $110,000.

There is no separate mobile platform for Livevol X, though, so these extensive options scanning tools aren’t exactly something you’d want to peek at on the road.

Published in Barron’s Online, February 10, 2014.

]]>Net Neutrality Ruling Could Hurt Small Investors, Brokerstag:investorbrain.com,2014:index.php/site/index/1.2932014-02-06T21:23:00Z2014-02-12T21:36:09Ztwcareytheresa@twcarey.com
The changes would result from the U.S. Federal Appeals Court ruling on Jan. 14 that undermined the Federal Communications Commission’s basic Internet operating philosophy – that no one could restrict lawful network traffic by blocking applications or unreasonably discriminating against a transmission. Verizon Communications challenged the FCC’s position that all traffic had to be treated equally, regardless of its point of origin or intended audience, and won.

As a result, Internet Service Providers (ISPs) such as Verizon can now set up what are in essence high speed lanes for prioritized traffic, according to TD Ameritrade’s John Hart, director of trader product development. “The idea is to generate additional revenue by charging businesses on the supply side of the data for access to their subscriber base,” explains Hart. An ISP could decide to block or slow access to a site’s data, which Hart worries could shift the balance of information even more toward big institutions that can afford to pay for faster service.

“This issue only affects those end-users that consume data via the Internet,” says Tom Heffernan, vice president of marketing at online broker MoneyBlock. “Banks and other institutions access data typically using direct connections, [avoiding] the Internet, so there would be relatively little impact on their businesses,”

Smaller retail customers, however, have relied on “net neutrality” to keep the flow of data available to them via the Internet. Now, the ISPs will have the right to charge either the online brokers or their clients more to get the same information. Frequent traders and high net-worth customers are likely to get the best deals from brokers because they generate more commissions and fees than their smaller counterparts. Because institutional investors deal directly with exchanges without the Internet they won’t feel the change at all.

The most likely first effect all online traders will see is a longer list of legal disclosures and disclaimers from their brokers. Heffernan points out that retail traders already agree to a long list of instances in which online brokers aren’t deemed responsible for disruptions in data speed. More disclaimers are likely so the online brokers can protect themselves.

For investors who invest in mutual funds or buy and hold stocks, the effect will be minimal because they don’t rely on real-time time data. The funds also conduct their transactions after the market has closed.

But for big, frequent traders, who are the most sought-after clients for many online brokers, the stakes will be higher. Given their need for data and speed, they will be quicker than their smaller counterparts to sign up for premium delivery in order to have meaningful real-time data like real-time options chains, that can involve thousands of pieces of data every few seconds as the information is updated. It’s not as dense as a high definition streaming video from Game of Thrones, but slowing it down slightly will have a big impact.

There will be effects on the brokers, too.

Ending net neutrality could produce more regulations for broker/dealers, including the disclosures about any deals they might make with ISPs to speed the data along the pipes.

Heffernan envisions one scenario in which a large trading firm cuts an exclusive deal with an ISP that guarantees the broker the fastest data transmission speeds. That would give the broker lots of opportunities to take business from smaller, slower firms that can’t afford the higher speeds. An inability to transmit data on a timely basis to customers would severely restrict a brokers’ ability to compete.

We’re already seeing promotions from AT&T offering businesses the opportunity to provide their customers with “sponsored data” on mobile devices. Under these deals, a retail customer can download an app and get the data, which is paid for by the app provider. That means the customer’s monthly data allotment isn’t affected. But it also raises the possibility that the data could be blocked or slowed because a sponsor isn’t footing the bill.

Consumer groups as well as the FCC are working on an appeal to the ruling, and there is still some possibility that the FCC can just classify internet services as telecommunications services, which would keep the concept of neutrality in place. FCC Chair Tom Wheeler said, in a statement, “We will consider all available options, including those for appeal, to ensure that these networks on which the Internet depends continue to provide a free and open platform for innovation and expression, and operate in the interest of all Americans.” Small investors included.

Published in Barron’s Online, January 31, 2014.

]]>Where to Search for a Financial Advisor Onlinetag:investorbrain.com,2014:index.php/site/index/1.2922014-01-18T23:58:00Z2014-01-25T00:00:10Ztwcareytheresa@twcarey.comBarron’s speaks frequently with financial advisors, providing insights into what they think about the markets and how they manage their businesses. But what do the clients think of their advisors? A new Website, Wallethub (wallethub.com) lets its readers take over, allowing them to search through more than 250,000 advisors in the U.S., and provide feedback about those they’ve worked with in the past.

A search through the 40 advisors who share my zip code turned up zero reviews, but that’s not terribly surprising given the recent launch of the site. Others from around the country received reviews ranging from, “A gifted financial analyst,” to “He just wants to get his commission and does not care about the customer.” Wallethub aspires to be the Yelp of financial services, with consumer reviews of banks, credit cards, and insurance companies to complement its offering on advisors.

Another site, Nerdwallet (nerdwallet.com), lets its members pose questions directly to financial advisors; members then vote on whether the answer was helpful or not. There are links attached to each advisor’s answer that let you make contact with the ones you like. The top contributors, based on how many people found their answers helpful, are listed in the right-hand column of the Ask an Advisor page. Recent questions included whether a couple was close to being able to retire (it seemed like they were, according to an advisor) and whether to pay off $58,000 in credit-card debt by raiding a 401(k) (not a good idea, said several advisors).

Many financial planners and advisors rely on word-of-mouth to find customers, though an increasing number are turning to social media. There are also sites such as WiserAdvisor.com that ask a few key questions, such as what sort of services you’re looking for and the size of your current portfolio, that match you with an advisor near you. Of course, we’d suggest you check out Barron’s many annual advisor rankings, including The Top 100 (April 15, 2013). You could take the results of a WiserAdvisor.com query and then search Barron’s rankings, Wallethub, and NerdWallet to gather more information about a potential match.

TradeStation, a sophisticated online broker for frequent traders who like to build their own systems, recently launched an unbundled equities commission structure for high-volume users. Unbundled pricing, rather than a flat fee, allows the firm to pass the various fees and rebates from exchanges and other market centers on to their customers. For those who trade a lot, it’s possible to lower costs by choosing the appropriate venue.

“Each exchange or market center charges different fees and awards rebates based on how a trader’s order interacts with the markets,” explains CEO Solomon Sredni. As a result, the trader will reap the benefit of any rebates or other discounts offered and thereby lower their trading costs. It will “give clients the ability to route their orders to the exchange or market center offering pricing that best suits their trading style and objectives,” he says.

For example, a client who trades 5 million shares per month could place a limit order to buy 10,000 shares of Microsoft (ticker: MSFT) that will add liquidity to the marketplace. She selects BATS as the destination to route the order and receives a rebate of $25 for adding liquidity. TradeStation’s commission is $20, based on her trading activity, and the clearing fee is $2. So this customer will see a $3 rebate when all is said and done. If the customer had selected flat-fee pricing, she would have paid $4.99 for this transaction.

Taking advantage of unbundled pricing requires study of the fees charged by the exchanges and market centers, as well as an understanding of when one is adding or removing liquidity. If you’re willing to do the work, you can reap the rewards.

Published in Barron’s Online, January 11, 2014.

]]>Market Prophit Finds Predictability in Social Mediatag:investorbrain.com,2014:index.php/site/index/1.2912014-01-04T09:43:01Z2013-12-31T18:45:51Ztwcareytheresa@twcarey.comWe looked at Market Prophit earlier this year, and liked what we saw ("Check the Buzz on Apple,” July 15, 2013), noting that it generated bullish or bearish signals about stocks based on posts being made to Twitter. The sentiment calculations are generated in real-time, based on proprietary analytics, and are updated every minute. Ranging from +1 (bullish) to -1 (bearish), you can view heat maps that translate the sentiment calculation into shades of red and green by sector or exchange.

The firm just launched its Market Prophit Score, which helps identify individuals who provide content that is predictive of market behavior. Each financial maven also receives a Market Prophit Rank, showing how each blogger ranks relative to his or her peers. If a person has a good predictability, a positive score is generated. If they have a negative correlation to stock-price movements, they get a negative score. If they’re just noisy, they get a 0.

Gonta believes that some bloggers may attain high scores in the twos and threes, while the lower-quality posters may end up in the negative two to three range. The analytics ignore a poster’s popularity, measured in terms of followers and retweets, because, as Gonta says, “We don’t think popularity has anything to do with predictability. Just because someone has 100,000 followers and tweets constantly about stocks doesn’t necessarily make them good.”

One feature Gonta points to is that the scoring mechanism can discover people you may never have heard of in the sea of millions of Twitter posters.

Clicking on the Top Ten Market Prophits links brings up a page with information about the current top ten prognosticators. In first place overall earlier this week was the Twitter account attached to The Options Pros, with a Markit Prophit Score of 2.282, which had recently mentioned Amazon (ticker: AMZN), Illumina (ILMN), Costco (COST) and Twitter (TWTR) itself.

Each stock analyzed on Market Prophit also provides details about the bloggers who are more focused. Poking around Market Prophit’s detail page for Apple, for example, the top three Market Prophits early this week had the Twitter usernames of @MW_AAPL (with a Market Prophit Score of 0.696), @DBainySun (0.587) and @A_Karunaratne (0.374). The first account, @MW_AAPL, is focused solely on Apple and is managed by MarketWatch, which is owned by Dow Jones, the parent of Barron’s. The other two are individuals. Clicking on a Twitter handle opens a new browser page with the most recent tweets displayed. You can also look at each maven’s user stats, which details the ticker symbols mentioned and the ticker-specific return and ranking.

ONCE YOU’VE IDENTIFIED BLOGGERS who provide information via Twitter that is positively correlated with a particular stock or sector’s return, you can add that maven to your Market Prophit dashboard and keep an eye on what they’re saying. You can also create an alert so that you receive an e-mail when they’ve put up a new tweet about your stock.

You can flip your display about a particular stock from what the crowd is saying to what the mavens are saying with a mouse click. Market Prophit is currently in its late beta testing phase and is free for now. Eventually, Gonta expects the site will offer subscriptions and premium content, and also provide an interface for brokers and other financial sites so that their content can be integrated with other third-party data.

If you’re using social media at all in your investing strategy, Market Prophit is well worth adding to your toolkit.

IT’S TIME FOR OUR 19TH ANNUAL review of online brokers. Help us refine the criteria for our survey by letting us know what is working for you with your online broker, and what is driving you crazy. If you’re not yet trading online, what feature could a broker offer that would entice you to sign up? Drop us a line at electronicinvestor@yahoo.com .

Published in Barron’s, December 30, 2013.

]]>Holiday Gifts from Fidelity and TD Ameritradetag:investorbrain.com,2013:index.php/site/index/1.2902013-12-22T00:10:00Z2013-12-24T00:13:23Ztwcareytheresa@twcarey.comIn a recent meeting with Barron’s, Ram Subramaniam, president of Fidelity‘s retail brokerage and cash management businesses, explains that updates to the firm’s services are all designed to add value in some way. For instance, the mutual-fund giant’s in-house order routing system has amped up price improvement to an average of $5.32 per 1,000 share order, for which traders pay a $7.95 commission. Over the course of 2013, Fidelity has offered 76 ETFs, provided by iShares and Fidelity, that can be traded commission-free (as long as they are held for at least 30 days).

Active traders at Fidelity utilizing their Active Trader Pro platform (activetraderpro.com, or launch from within the Fidelity Website) will be able to use new options analytic tools, which include idea generation and live scanning. There are a variety of pre-defined options scans built in to the active trading platform, but for now, to run a custom scan you have to use the tools at fidelity.com. A new probability calculator lets you evaluate a variety of potential trades, and a flexible profit and loss calculator enables a trader to create synthetic positions that show a potential trade’s effect on her overall portfolio.

Additional tools for Active Trader Pro users include a new multiple-order trade ticket, which allows you to cue up to 50 orders, which you can activate whenever you wish. These orders are stored on Fidelity’s server rather than on your local computer, so you can access them whether you are using the Web-based version of the active trading platform, or the downloadable software. Traders can choose whatever order-routing method they prefer, or default to Fidelity’s designated liquidity manager for access to a variety of routes, including dark pools.

For those who are shorting stock, the process of finding shares to borrow has become fully automated this fall at Fidelity, so you can sort through the shares available, and understand in advance what fees might be levied. An icon indicating a stock is hard to borrow makes those easy to spot. Previously you had to contact a human to short most stocks.

Education has been a point of emphasis for Fidelity. An initiative open to everyone, whether a Fidelity customer or not, is Fidelity Labs (fidelitylabs.com), which has an online investing game called “Beat the Benchmark.” The game, now in Beta test, challenges novice investors to allocate assets in ways that will outperform a randomly chosen benchmark. As players advance, competing to “beat the benchmark,” each new stage introduces additional tools and potential investments.

“We’ve known for years that gaming could play a part in helping investors learn, and could potentially lead to better investment outcomes. By developing a game based primarily on feedback from novice investors, our goal is to co-develop the future of online investing education,” says Sean Belka, senior vice president and director of the Fidelity Center for Applied Technology, via e-mail. Belka notes that consumers have been involved in the development process, and their feedback will be used for incremental improvements. Check it out.

TD Ameritrade has added several tools to its Website that allow clients to manage a variety of real-time tasks on a single screen. “My Dock,” the biggest of the enhancements, permits users to tailor their experience by choosing between different trading and investing modules. You can create up to four columns of streaming data, including balances, watch lists, and news. The new account-overview page displays balances and positions with additional room for market news and alerts. Making it easy to navigate anywhere on the site in one click is the new Rollover menu, which is a welcome touch for a site that was getting more and more complicated.

An enhanced order entry ticket, called SnapTicket, can be set up so that it is displayed wherever you are on the TD Ameritrade Website, allowing you to keep an eye on your open orders. The One Stop Search feature enables you to look for anything you might want on the Website—symbols, keywords, research features, etc.—from a single location. These are all welcome creature comforts.

Charles Schwab has announced an “accountability guarantee,” which refunds the fee you have paid for advisory services if you’re unhappy with the service received in the prior quarter. This guarantee applies to Schwab Managed Portfolios, Schwab Private Client and Managed Account Connection accounts managed by investment advisors affiliated with Charles Schwab & Co., Charles Schwab Investment Management, Windhaven Investment Management, and ThomasPartners. Program fees are typically a percentage of the assets in your account, and the guarantee is in place to make sure you’re getting value for your money.

Our 19th annual review of online brokers is in the works. What is working for you with your online broker, and what is driving you crazy? Let us know at electronicinvestor@yahoo.com .

Published on Barron’s Online, December 16, 2013.

]]>How To Make Doughtag:investorbrain.com,2013:index.php/site/index/1.2892013-11-30T11:26:00Z2013-11-25T23:28:12Ztwcareytheresa@twcarey.comDough acts as an analytical platform, helping you find profitable trades. It has six modules: a trading panel, a monitor of other traders, portfolio analysis, the Grid (which tracks stocks), an activity summary, and a trading journal. The interface guides you through constructing a trade, and is designed to show you the effect a trade will have on your portfolio. “We designed dough to put the fun and the challenge back into finance. Regardless of age and domain experience, dough engages through investible content,” says Sosnoff.

The interface looks like an iPad app in portrait mode. Buttons along the top of the screen let you choose from a variety of options strategies; setting up a stock trade is also possible. You can design a strategy yourself by dragging and dropping icons shaped like shields, which represent stocks, calls, or puts. Options are displayed with strike prices on the horizontal axis, and expiration dates along the vertical axis. As you build an order, one of dough’s key features comes into play: the probability of profit. You can adjust the order by, say, widening the spread on this screen, and the updated probability is displayed. Once you have an order you’d like to execute, pressing the Confirm button generates a text description.

The dough platform also connects to the live broadcast of tastytrade, as well as instructional videos about trading called doughtv. A group of traders (including Sosnoff) is displayed on the opening screen; you can follow one or more of them and see exactly what they’re trading. Each trader’s current return on capital and probability of profit is prominently displayed.

The Grid is a series of color-coded tiles that help you monitor the stocks in which you’re interested. You can add symbols to the Grid and manage a variety of watch lists. Each tile displays the current price, whether the most recent tick was up or down, and the net change in value for the day. The color of the tile—green for rising prices and red for declining ones—allows you to track your stocks.

There’s a circle in the middle of each tile that represents the stock’s volatility compared with its historical range. A nearly full circle indicates that volatility is high, which means that the stock’s price could change dramatically in a short period of time. A nearly empty circle means that its value is not expected to fluctuate wildly but rather shift gradually over time. Dough recommends that you look for stocks at the extremes of their volatility range to get the most out of price changes; the display lets you quickly scan for nearly full or nearly empty circles.

THE TRADING JOURNAL is a slick way to monitor your ideas and orders, and lets you store screen shots of your trades along with market data.

If you have a TD Ameritrade brokerage account, you can execute trades from dough; if you trade elsewhere, you can enter your trades manually. You can open a TD Ameritrade account from within dough and receive commission-free trades for 60 days. (TD Ameritrade purchased Sosnoff’s thinkorswim electronic brokerage in 2009, and the two retain close ties.) There could be other broker links in the future. Dough will be free once it’s fully up and running.

A recent show on tastytrade, which broadcasts eight hours of live programming every weekday beginning at 7 a.m. Central (the firm is based in Chicago), features Sosnoff’s daughter, Case, the business team’s director of Website development. She hosts Where Do I Start?—an entertaining way to learn about trading strategies as she peppers her father with questions that range from technical tips to musings about his sanity.

Case also represents dough’s target audience—who are tech savvy but still learning about investing. With its highly visual, almost gamelike, interface, dough could be the sort of tool that brings in newly minted options traders.

We found it to be a well-designed application that provides several unique tools. You can weigh in with your own beta test at dough.com.

Published in Barron’s, November 24, 2013.

]]>How Fast Is Your Online Broker?tag:investorbrain.com,2013:index.php/site/index/1.2882013-11-16T11:21:01Z2013-11-25T23:25:44Ztwcareytheresa@twcarey.comGiven the inundation of reports about healthcare.gov’s tardiness, it seemed like a good time to call in Compuware APM Benchmarks, which provides online performance data, to give 12 online-broker sites a six-month checkup. Compuware ranked the firms in order of speed for placing a trade and the time it takes to load the site’s home page. This differs from Barron’s annual ranking, which assesses quality of the overall trading experience; our normal review looks at direct-access brokers as well as Web-based brokers.

Scottrade, TD Ameritrade, and Fidelity were the winners for speed in executing a script that places an order. Lagging were Firstrade, TradeKing, and Vanguard. Compuware considers a time of five seconds or fewer to be outstanding; the industry average was 7.74 seconds in this assessment. The fastest order-generation time was 2.84 seconds, measured at Scottrade, while Firstrade’s response time was a leisurely 30.8 seconds.

Fidelity’s home page loads the fastest, followed by e*Trade and optionsXpress. Firstrade and Vanguard are low on the list, as are Scottrade and TD Ameritrade, despite their fast order-entry systems.

It’s not surprising to see Fidelity’s name atop these lists, as it has been investing heavily to make its Website faster and easier to use. “Fidelity’s Web team measures resource consumption of components, processes and latency at measurable points in the systems, and we identify application bottlenecks to improve application performance,” says Richard Blunck, an executive vice president for digital distribution. Fidelity, he says, avoids any change unless it improves performance.

Some of those that finished lower on the rankings made note of possible impediments. Don Montanaro, TradeKing’s CEO, says security technology designed to thwart network attacks can slow systems, or a script can get hung up waiting for a trading password. And firms such as Vanguard likely haven’t made Web speed a big priority, because they emphasize long-term investments and low costs.

COMPUWARE MEASURED THE DAILY technical performance of the Websites and averaged the results over six months, from April through September 2013. Tests were run from 12 geographically dispersed data centers across multiple network providers within the U.S. at regular 30- or 60-minute intervals each business day. The results shown in the two tables below indicate the Websites’ performance over time.

Compuware uses three metrics: Response time measures how long it takes to load a page, in seconds (lower is better); availability assesses by percent how often the site is able to complete a transaction (the closer to 100% the better); and consistency tracks how the response time varies over many visits, shown in seconds (lower is better). The consistency figure is simply the standard deviation, a statistical measure. Compuware collates the three metrics into an overall ranking. Simply put, a Website must do well on all metrics to achieve a high ranking.

Technical performance is very important to active online traders, who want to use every second to get the best price or to exit a collapsing position. Compuware surveys showed that 65% of consumers who have bought or sold a stock online have experienced a problem during a peak period, and 44% of them would switch to a competitor if not satisfied with their current provider’s Website. Speed and reliability are key components of customer satisfaction.

Steven Dykstra, senior product manager for Compuware, says brokerage Websites have much better technical performance than their counterparts at other businesses it tracks, such as retail, media, and travel outfits. It’s clear that Fidelity and Scottrade have invested in online performance.

The average availability of the 12 Websites is quite high, though Compuware notes that the site with the lowest availability, Firstrade, was unavailable 1.1% of the time, or four days a year. The firm didn’t respond to calls for comment.

“While most brokerages seem to have figured out how to make home pages fast, a few really lag on investors’ ability to complete a simple transaction,” says Dykstra.

Compuware sent the Obama administration its own “get well” recommendations after reviewing healthcare.gov: Health officials should follow many of the standard practices of online brokers, such as compressing images to save on network bandwidth, and speeding up execution by trimming the number of elements in use on a page. Speed and availability make customers—and constituents—happy.

And Now for the Winners

Scottrade can generate an order in under three seconds, with TD Ameritrade and Fidelity not far behind. On the opposite end is Firstrade, whose system takes nearly 31 seconds. Fidelity opens to its home page in about a half-second; Firstrade is much faster here, but still last.

]]>Majoring in Moneytag:investorbrain.com,2013:index.php/site/index/1.2872013-10-26T20:13:00Z2013-11-08T20:16:13Ztwcareytheresa@twcarey.comThe company’s mission is the expansion of economic opportunity in the U.S. by developing financial-literacy programs for urban youth. The aim is to educate every teenager in how to navigate the financial challenges of adult life. Moneythink has set up a program in which college volunteers mentor local youth, teaching them how to make and manage money. Among the colleges involved are U.C. Berkeley, Carnegie Mellon, and Rice.

The mentors teach their students about networking, budgeting, banking, investing, saving, and managing debt and government benefits. They work with small groups—at most five students—to encourage strong financial and career decision-making. Making use of pop culture to illustrate the upside of sound financial management and the downside of fiscal imprudence, the once-weekly sessions help students better understand the financial landscape so they can develop their own personal financial blueprint. It was created by Ted Gonder, Shashin Chokshi, and Greg Nance.

It’s a lofty aim, and financed by donors that include the Center for Financial Services Innovation and the Blackstone Charitable Foundation, the Website is definitely worth a look.

The late Muriel Siebert and I often discussed the financial-literacy program she developed for high-school students. It became part of New York City’s high-school curriculum, and Siebert worked to expand it nationally. The Jump$tart Coalition (jumpstart.org) has a map on its Website that shows financial-literacy education requirements by state. Only four, Utah, Missouri, Tennessee, and Virginia, require at least a semester course devoted to personal finance. Twenty others, including New York, require personal-finance instruction to be incorporated into other subjects. The other 26 states have no requirements.

Jump$tart has a terrific library of financial-literacy resources, many of which are free to teachers and caregivers. It also conducts a biennial survey; unfortunately, when last conducted in 2010, it demonstrated that graduating high-school seniors continue to struggle with the basics of financial literacy.

If you’ve got high school- or college-age offspring in your household, it would be of great benefit to them—and to you—to run them through Jump$tart’s Reality Check, which you can find under the Resources tab. It’s a short questionnaire that will tell you how much you would have to make per hour to support the lifestyle desired without going into debt. It’s a real eye-opener.

I have some informal personal experience here. I’m currently volunteering with a terrific, local (to me) organization called 10 Books A Home (10booksahome.org). I have an hour-long tutoring session each week with a preschool child from an underprivileged family that does not speak English at home. We read, play, and converse in English, and I often throw in money-related items. My learner’s mother told me recently that her child is looking at prices at the grocery store and suggesting less-expensive items. There may be a way you can help promote literacy in your neighborhood.

PRODIGIO/TRADEMONSTER: Earlier this month, tradeMonster (trademonster.com) announced that it has partnered with mPower, publisher of Prodigio, an analytical platform that allows you to back-test a trading system. We raved about Prodigio when it was introduced by thinkorswim (thinkorswim.com) several years ago. But when TD Ameritrade bought thinkorswim, Prodigio wasn’t folded in, and it initially planned a partnership with OptionsHouse. That agreement has since dissolved.

Among Prodigio’s features are strategy back-testing, pivot studies, pairs-trading functionality, and a complete charting package. You set up a strategy scan using drag-and-drop technology. Prodigio is capable of helping a trader develop and test strategies, and then set them up to automatically trade for you. Anyone putting Prodigio to use needs a very high level of financial literacy.

Published in Barron’s, October 21, 2013.

]]>Nearly Limitless Options at TradeStationtag:investorbrain.com,2013:index.php/site/index/1.2862013-10-12T20:09:00Z2013-11-08T20:13:14Ztwcareytheresa@twcarey.comOne of the more intriguing tools on its options platform, OptionStation Pro, even allows you to change what the application looks like on your screen. An “appearance” tab is built in; clicking on it lets you access a variety of skins, or the graphical presentation, and fonts, allowing you to personalize the platform. You can make the letters bigger or adjust the color scheme to light blue on maroon if that pleases you.

Most options trading platforms have the Black-Scholes options pricing model built in, which when first published, legitimized the science behind options markets and led to a boom in trading. This pricing model was originally designed for European-style options, which can only be exercised on their expiration date. OptionStation Pro enables you to switch to the Bjerksund-Stensland option-pricing model, which is theoretically more accurate than Black-Scholes when it comes to American-style options. These options can be exercised on any trading day on or before expiry.

Black-Scholes calculations are in wide use among traders, mainly because they’re quicker to execute, but with the speed of today’s computers, you aren’t likely to notice a difference. So, you now have a choice of pricing models.

Another enhancement to the options pricing models is the automatic use of the 13-week Treasury bill rate (^IRX) rather than manual entry of an interest rate. TradeStation calls this feature “hands-free interest rate updates.”

The firm added what it refers to as the “SpreadMaster” feature. This allows you to create custom spreads in both theoretical and real positions using drag and drop functionality. If you have multiple spreads on the same underlying symbol, you could keep track of them in whatever configuration you want. If you have an iron condor, for example, which has four legs, you could break it up into two vertical spreads, which have two legs, and monitor each independently. You could also close the verticals separately.

SpreadMaster gives you a lot of control over how your options positions appear. You can set up theoretical spreads and drop them into your existing portfolio to assess the change in risk. You can also drop a theoretical spread into the order bar, execute it, and then drag and drop the components into the configuration you want. This is a very advanced options management tool, but one that should make creating and managing spreads much easier.

There were several changes to the OptionStation Pro order bar, including the automatic display of the estimated maximum risk and reward, as well as the estimated cost of the order and the theoretical profit and loss. If you set up an order that has the possibility of being rejected, you’ll see a message that prompts you to fix it before hitting the Place Order button.

If you want to roll a contract or spread with up to two legs to a future month, click on the position and then choose the new strike date and price. If you want to roll a four-legged spread, you’ll have to break it into two two-legged spreads and roll those; you can recombine the resulting positions into a four-legged spread if you want.

Janette Perez, TradeStation’s vice president of strategic relations, says, “We take you where you’re at when you come to TradeStation, and help you move forward.” She says the platform itself offers coaching to help you become a more sophisticated trader, intelligently guiding you towards the tools that let you make the trades you want.

The firm recently launched an iPad app as well as an Android tablet app; TradeStation was one of the last holdouts on the mobile front.

ANOTHER TYPE OF ONLINE TRADING: A couple of weeks ago, I made a quick visit to Chicago. While there, I was invited to appear on tastytrade.com, an online financial network, and had a great discussion about online trading with Tom Sosnoff and Tony Batista, tastytrade founders and former market makers. I stuck around and watched the guest who appeared after me, and was very intrigued by his Website, Raise.com. (Click here to see the segment in which I appeared.)

George Bousis, the co-founder and CEO, has set up a site that allows people to trade gift cards. Did your Aunt Maude give you an Olive Garden card for your birthday that you don’t want? You can sell it on Raise.com though you’ll take a hit on the balance of 8-13%, according to the information displayed on its Olive Garden page. Raise.com takes a 15% commission on sales; if you as a buyer want a physical card, that will run you $1 per card. Electronic gift cards are free.

There are hundreds of gift cards for sale on the site, from Sears to Nike to Victoria’s Secret. It’s easy to search the cards available if you’re a buyer, and also pretty simple to place a card that you own on the market. Check it out.

Published in Barron’s, October 7, 2013.

]]>Be A Little Angeltag:investorbrain.com,2013:index.php/site/index/1.2852013-09-28T20:07:01Z2013-11-08T20:09:13Ztwcareytheresa@twcarey.comCompanies raising funds on sites such as CircleUp, Crowdfunder, and AlumniFunder are allowed to advertise these offerings to what the Securities and Exchange Commission calls “accredited investors,” who must meet certain income and net-worth requirements. Once the new measure goes into effect this week, the promotions also can be made to nonaccredited investors with far fewer assets. However, the companies do have new registration requirements with the SEC to avoid fraudulent fund raising.

This is the same provision of the JOBS Act that will allow hedge funds to advertise to retail investors for the first time, but the returns possible from angel investing are more intriguing. According to the Angel Performance Project, published by Robert E. Wiltbank of Willamette University for the Kauffman Foundation, the average return for early-stage investments is 2.6 times the initial investment in 3.5 years. That’s much better than many investment classes, including hedge funds. However, there were wide variations in returns, suggesting risk, as well.

We took a close look at San Francisco’s CircleUp (circleup.com), which focuses on businesses with revenue of at least $1 million per year that produce consumer goods. CircleUp members recently funded SmartyPants, a maker of gummy vitamins for kids and adults, as well as 18 Rabbits, which makes granola and snack bars. Rory Eakin, CircleUp’s co-founder and CEO, says his site has narrowed its investment selection for three reasons.

“We believe that the average retail investor is better at assessing consumer products than high-tech offerings such as cloud computing,” Eakin says. He also thinks the consumer-products industry is underfunded relative to other sectors, and that there’s a tremendous growth opportunity in this sector. “If we did tech, we’d be competing against venture firms and other institutional investors,” Eakin notes. Venture firms, he says, don’t have much experience doing due diligence on consumer firms, since so much of the industry concentrates on high tech.

Signing up is relatively quick and easy, though it takes a day or two to verify your identity and financial accreditation. Under the soon-to-expire rules, a household net worth of $1 million or more, not including your primary residence, or annual income of $200,000 for an individual, or $300,000 for a couple, puts you in the accredited-investor ranks. Once accepted as a member, you can browse available companies by location and industry, and converse with officers of individual firms.

THESE CONVERSATIONS, which take place on each company’s Forum page, can be extremely detailed. The answers from company reps are quite straightforward. In many cases, the companies are already producing goods, so you can go to a local store and check them out before deciding whether to provide financing.

The minimum investment varies by offering; some are as low as $1,000. CircleUp narrows the choices for members. It looks for innovative companies that already are generating pretty substantial revenue. The site has its own professional consumer-focused investors who evaluate each opportunity, handpicking those that go onto CircleUp. Members can suggest new additions to the site.

A key component of venture funding is an exit strategy. Eakin says that CircleUp hasn’t yet seen a company through to exit, as it was just opened in 2012 and the average holding period is 4½ years. Generally, this occurs through an acquisition, buyout, or initial public offering. CircleUp tries to focus on companies that could appeal to a larger brand or a private-equity firm down the road.

Is this an asset class you should consider? If you are willing to wait for a payout and do your homework, this could be extremely exciting. It’s a high-risk, illiquid asset class, but the upside is huge.

Published in Barron’s, September 23, 2013.

]]>Toughen Up SEC Rulestag:investorbrain.com,2013:index.php/site/index/1.2842013-09-14T09:14:00Z2013-09-12T18:17:28Ztwcareytheresa@twcarey.comThe SEC is readying Reg SCI (Systems Compliance and Integrity) to replace and expand portions of the commission’s Automation Review Policy (ARP), which covers trading technology and systems. With their 60-day comment period finished, the Reg SCI rules—designed to get a better handle on Wall Street’s technology infrastructure and create more trading stability—are in a revision period with the implementation date still unclear. SEC Chairman Mary Jo White is a strong advocate. In many cases, the rules make mandatory what has been voluntary, and the industry has opposed them, mostly based on the cost of implementation.

Reg SCI would impose new standards on “key market participants,” such as exchanges and certain alternate-trading systems, clearing agencies, and automated systems that directly support trading, clearance and settlement, order routing, market data, regulation, and surveillance. Also covered would be the self-regulatory organizations: the Financial Industry Regulatory Authority (Finra) and the Municipal Securities Review Board. The SEC has said 10 dark pools, or private trading platforms, are large enough to be regulated, based on their 2012 volumes.

AFFECTED MARKET PARTICIPANTS would be required to establish, maintain, and enforce policies and procedures to ensure that their systems can operate and promote fair and orderly markets, and that they comply with all laws and regulations. They are also required to correct any system disruptions or compliance issues and to notify the SEC of system changes. Disaster-recovery plans would have to be tested at least annually, with a report on compliance to authorities.

Frankly, it’s surprising to me that such policies and procedures are still voluntary, given recent history. Nasdaq OMX Group (ticker: NDAQ), which is slated to brief the SEC this week about the Aug. 22 breakdown, has said that problem occurred because of a massive number of data requests from a rival exchange, NYSE Arca, that came in above tested limits. Nasdaq’s securities-information processor failed to handle the extreme message traffic. The messages included requests for price quotes.

In May 2010 came the “Flash Crash” that caused nearly $1 trillion in temporary paper losses; and in 2012 a tech snafu at Knight Capital led to the firm’s losing millions of dollars and ultimately being sold. Another tech failure: Facebook’s (FB) disastrous initial public offering, which spurred Nasdaq to make good on up to $62 million in systems-related losses.

Most responses to the proposed regulations are, rather predictably, against the added burden of new rules and requirements. Finra says, in its comment letter of July 8, 2013, that while it supports the goals of the proposed regulation, it is “concerned that the scope of Regulation SCI may be overly broad and may potentially encompass a large number of systems, perhaps unintentionally, which could diminish the overall focus and effectiveness of the proposal.” Finra considers the proposal too rigid, and would like the entities involved to have more discretion and flexibility in adopting their own policies and procedures. Its 43-page response makes numerous requests for clarification, using the phrase, “unclear and potentially overly burdensome” dozens of times.

Others suggest the industry has adequate incentives to fix the problems.

Not everyone on Wall Street agrees. One trading executive, who spoke on the condition of anonymity, insists tougher regulation is needed. He believes that, given their size, importance, and risk, the exchanges should be treated like public utilities and regulated as such. “They have a critical public function to fulfill,” he says.

Dave Lauer, a market-structure and technology-architecture consultant, thinks the regulations should also apply to broker-dealers, and has said that, “anybody with direct market access should be covered by Regulation SCI and have stringent and robust technology standards imposed on their processes.” The emphasis on competition has overwhelmed the need for stability.

Clearly there is room for greater technological stability. We will continue to monitor the state of these regulations, and how they affect the retail trader.

Published in Barron’s, September 9, 2013

]]>New Online Broker Bucks the Tidetag:investorbrain.com,2013:index.php/site/index/1.2832013-08-31T09:47:01Z2013-08-26T18:49:31Ztwcareytheresa@twcarey.comEngmann’s company, Sage Brokerage Holdings, recently acquired a small San Francisco institutional dealer, VT Broker, which it has reconfigured as SageTrader (sagetrader.com). Clients will be able to trade equities, options and futures immediately, and later on fixed income and swaps will be added. SageTrader provides all of the back-end services that heavy traders require, including accounting and risk-management tools.

The creator of Sage has run a number of brokers serving proprietary traders, who trade their firms’ own funds. Among them were Preferred Trade and Fimat. The latter became Newedge Trading. When Engmann retired briefly in 2007, Newedge was gradually wound down, and its clients migrated to retail-focused brokers such as Interactive Brokers and thinkorswim. His previous customers, he says, find today’s trading technology interesting, but miss the service they once enjoyed. So Engmann’s new firm will try to entice these traders with “hands-on service at more efficient and reasonable rates.”

Engmann was working on other projects but says, “This opportunity to acquire a firm and work with my old team was too good to pass up.”

A key attraction for SageTrader’s customers is the ability to utilize portfolio margining, thanks to the firm’s real-time risk management system. Engmann was one of the pioneers of portfolio margining while at Fimat/Newedge USA from 2005 to 2007. This technique can significantly lower the capital required to place a trade because it takes into account both equity and options positions. An offsetting option reduces the overall size of the position, thus cutting the amount of capital required. To offer portfolio margining requires real-time account updates and a sophisticated risk management.

SageTrader won’t offer its own front-end trading system. “It’s easier for clients to choose their own front end and interface with us,” Engmann says. Among the possibilities are RealTick, NeoVest, Sterling Trader, InstaQuote and Silexx. These are all downloadable software packages rather than Web-based trading applications, and typically incur a monthly fee for real-time data. These packages allow traders to develop their own algorithms, which is appealing to very frequent traders and hedge funds.

SageTrade clears securities transactions through Merrill Lynch and Wedbush, while futures are cleared through ED&F Man Capital Markets. One advantage of its back-end transaction management system is that SageTrade can provide customers with a consolidated statement even if they are clearing trades at multiple venues. “We’re finding that very attractive for traders who handle multiple asset classes,” he says.

For lower stakes players, Capital One ShareBuilder (sharebuilder.com) has made mini options available . Mini options went live in mid-March on five stocks and ETFs, including Amazon (ticker: AMZN), Apple (AAPL), Google (GOOG), SPDR Gold Trust (GLD) and the S&P 500 Index ETF (SPY). They allow investors to trade contracts that represent 10 shares rather than the standard 100 shares. ("Apple in Small Bites,” Barron’s, March 4.)

Dan Greenshields, president of Capital One ShareBuilder, says, “Mini options make this increasingly popular investment strategy more accessible to today’s Main Street investors who may not have the capital required to trade standard options, particularly for higher priced securities. We look forward to educating our customers on this new offering, and enabling them to be more successful investors for the long term.”

After reducing fees significantly for options trades during the second quarter of 2013, to $6.95 plus $0.75 per contract, ShareBuilder has seen a 30% increase in options transactions. ShareBuilder’s customers can place regular automatic trades in dollar amounts—for instance, $100 worth of Google stock every month—rather than buying by the share, which recently cost $873.